The Impact Of The Euro On Trade: The (Early) Effect Is Not So Large

Claudio Vicarelli, ISAE, Institute for Studies and Economic Analyses, Rome, Italy
Sergio de Nardis, ISAE, Institute for Studies and Economic Analyses, Rome, Italy

Abstract

We investigate the impact of adoption of the euro on the commercial transactions of EMU countries. Since the EMU is a relatively new phenomenon, we use a panel estimation of the gravity equation in a dynamic framework allowing for short run effects like trade persistence. Our main finding is that adoption of the euro has had a positive but not exorbitant impact on bilateral trade among European countries (ranging between 9 and 10%), which is much lower than that derivable from recent literature relative to a larger and heterogeneous set of countries.